Good point. I have a bad habit of spending time in corners of the Internet where libertarians, gold-bugs and various mutations thereof like to come and argue (i.e. any economics-related blog); so anything that looks like hard-money or libertarian advocacy provokes an instant “aw geez, not this shit again!” reaction.
It does occur to me that any system of money with de-centralized production probably does have to have an upper quantity limit, to keep random assholes from manipulating its value.
As popular as libertarianism and goldbuggism seem to be, it wouldn’t surprise me if much Bitcoin advocacy did derive from those beliefs. And it seems those beliefs are at least as misguided as theism (and we have no trouble being dismissive of them). Is there a nice way to discuss that?
As popular as libertarianism and goldbuggism seem to be, it wouldn’t surprise me if much Bitcoin advocacy did derive from those beliefs. And it seems those beliefs are at least as misguided as theism (and we have no trouble being dismissive of them). Is there a nice way to discuss that?
Sure, just discuss the particular problems with the (best versions of) propositions put forth by such people, and how their conclusions don’t follow, and what specific pieces of evidence weigh heavily against them. (Note the lack of smearing them as racists in this method.)
OTOH, if all you have is, “these people are weird and I don’t like them but I don’t specifically know what error they’re making, they just seem like aristocratic Southern racists”, you’re best off keeping that to yourself.
Sure, just discuss the particular problems with the (best versions of) propositions put forth by such people [goldbugs and libertarians], and how their conclusions don’t follow, and what specific pieces of evidence weight heavily against them. (Note the lack of smearing them as racists in this method.)
OK. Libertarianism I can leave to others (I don’t think I have anything new to say about it). As for hard-money advocacy, usually one sees the following errors:
Belief that there’s some Platonic ideal of “value” against which currencies should be measured (traditionally “gold”, though one sees variations these days)
Ignorance of the hazards of a totally exogenous money supply size. (fewer levers to deal with recessions and overly-hot economies; real wage declines have to happen nominally (which is very difficult) rather then through exchange rates)
Belief in immaculate transfer (trade balances, capital flows, and exchange rates in fact all affect one another)
Belief that the medium of exchange should be a stable long-term store of value, and in fact increase in real value without being invested (how could such a thing even work? What’s creating the value?)
As far as I can tell, the only of those I’ve seen from you in particular is the last one, and that’s another subthread.
There is a new one, from you, in this discussion though: the idea that “too much” economic activity is happening now, and it would be better to defer some of that economic activity until later. High unemployment refutes this. [If you’ll claim current unemployment is structural in nature, then what is the industry that lacks labor, and is thusly currently experiencing increasing real wages?]
Belief that there’s some Platonic ideal of “value” against which currencies should be measured
I find it funny how fans of mainstream economics mock goldbugs about this, while at the same time basing a large part of their own theories on a far more extreme Platonic concept of “real” values calculated using price indexes.
I do not have the impression that mainstream economists subscribe to a Platonic concept of “real” values. (Or maybe I’m just confused about what you mean.) Can you cite an example of this (i.e., a paper or article that describes or assumes such a concept)?
I have in mind the regular use of “real” figures in economics (i.e. those that are “inflation-adjusted,” as well as those based on “purchasing power parity” etc.). These concepts are in principle dissolvable—when citing some “real” figures, economists could address the questions of what exact index was used to adjust the value, what would be the implications of choosing a different index, how much the figures vary under different more or less reasonable definitions of indexes, what political and bureaucratic incentives have influenced the design of the official government indexes, etc., etc. Trouble is, in practice they almost never do, and except for some narrow and specialized work that studies indexes as such, the de facto standard of discourse in economics is to treat the “real” values as having a Platonic reality. (Even people who specifically study price indexes typically speak about “overestimating” or “underestimating” their value, as if there existed some Platonic “true” value out there.)
As an example of nonsense along these lines, you can take almost any paper that discusses how much some “real” variables have changed over a period of several decades (sometimes they’ll even talk about centuries). Of course, if you read that something cost a dollar in 1950, you’ll want to know how that compares with the 1950 prices of, say, a loaf of bread, an hour of unskilled labor, etc., to get the feel for how much a dollar was worth back then. However, asking what the “real” value of a 1950 dollar is in 2011 dollars, as a unique and well-defined number, is simply meaningless, considering that you can’t trade dollars across time, and the world has changed so much, both technologically and socially, that what counts as “living” in the typical “cost of living” in each era is incommensurable. (The same of course goes for comparing very different places in the same era, and even for similar places, what you count as the “typical” cost of living is largely arbitrary, especially considering the increasing prominence of status goods and conspicuous consumption in the modern economy.)
Yet such numbers are regularly cited with three, four, or even more significant digits, without any consideration of how their value depends on arbitrary conventions and how this dependence influences the argument at hand. (And even if such problems are acknowledged, they are usually presented as imprecise knowledge of the Platonic “true” value, not as the fundamental arbitrariness of the whole concept.)
Ok, I was confused by “Platonic” which I thought you were using to refer to intrinsic as opposed to subjective value. Thanks for the clarification.
In the sense you intend, I think you’re right that mainstream economists do subscribe to a Platonic concept of “real” value. They believe that real-world price indexes are based on a theory of price indexes, which is based on a theory of social welfare, which in turn is based on sound philosophy. But I think they are also aware that there are lots of problems with both theory and practice (perhaps less aware of the philosophical problems) even if they tend to not pay much attention to them in their daily work. Standard textbooks do mention the problems, and intuitively it’s pretty obvious that price indexes must be at best very flawed approximations to reality.
Putting aside what mainstream economists believe, when you say “meaningless” or “fundamental arbitrariness”, do you mean for example that there is no way, even in principle, to compare the marginal utility of a dollar in 1950 with the marginal utility of a dollar in 2010? Is it due to the standard interpersonal comparison of utility problem, or something else?
To put it another way, do you think the mainstream economics community should be more aware of problems with the theory and practice of price indexes and perhaps allocate more resources to solving them, or do you think they are just not solvable, and an entirely new approach is needed?
Ok, I was confused by “Platonic” which I thought you were using to refer to intrinsic as opposed to subjective value. Thanks for the clarification.
Subjective value is indeed among the core assumptions of neoclassical economics. The problem is that a whole lot of stuff that economists would like to be able to do (due to both theoretical and ideological interests) is automatically ruled out by this assumption. Reification of “real” values is one way how they try to square this circle, since it enables them to introduce intrinsic value in all but name into their theories.
Putting aside what mainstream economists believe, when you say “meaningless” or “fundamental arbitrariness”, do you mean for example that there is no way, even in principle, to compare the marginal utility of a dollar in 1950 with the marginal utility of a dollar in 2010? Is it due to the standard interpersonal comparison of utility problem, or something else?
Yes, you can see this as a corollary of the general problem of interpersonal utility comparison. (Although even if interpersonally comparable utilities are granted and known, you need additional strong assumptions to get rid of all the degrees of freedom that make the choice of index arbitrary.) But these are all different ways of looking at the same problem, namely the problem of intrinsic vs. subjective value.
This is not to say that every attempt to compare the value of money in different places and times for some particular purpose is meaningless, but whether a given attempt is meaningful depends on the context and the sort of comparison used. To guarantee soundness, such comparisons should be justified on a case by case basis by demonstrating that the conclusion indeed follows from the particulars of the way comparison is done. What is definitely unsound is defining a general-purpose “real” value of money and then using it as de facto intrinsic value, without any reflection on how exactly its definition connects to the concrete problem at hand.
To put it another way, do you think the mainstream economics community should be more aware of problems with the theory and practice of price indexes and perhaps allocate more resources to solving them, or do you think they are just not solvable, and an entirely new approach is needed?
Your question seems to assume the existence of a real scientific community in economics, of the sort that exists in natural sciences. However, the problem is that the economics profession has always been deeply intertwined with politics, government bureaucracy, and broader ideological controversies, and as with other social sciences, many of its basic theories and concepts were invented to support an ideological agenda, not as part of a true scientific endeavor. Moreover, many questions in economics have real immediate implications in terms of power, wealth, and status—to take a pertinent example, entitlement payments by the government are often linked to price indexes, so the question of how they should be defined is not just theoretical, but of immediate financial interest to many parties. Clearly, it would be naive to expect that such questions will be treated with a pristine scientific approach.
In this situation, it’s unrealistic to try to identify and fix the problems and biases in economics (and other social sciences) on a case by case basis, since the real problems are much more general and fundamental. Of course, the existing body of knowledge in economics is far from being entirely worthless, but separating the wheat of true insight from the chaff of ideological delusion and dishonesty, let alone establishing a real epistemologically sound science in place of what exists now, would be a very radical project.
Can you expand? Here’s the difference as I see it:
Price index: the dollar is worth 5% less than last year because it buys 5% less of the stuff in this market basket, populated with stuff representative of the “cost of living”
Gold standard: the dollar is worth 5% less than last year because it buys 5% less gold
Depending on the context, either concept can be anything from useful to deeply misleading. However, in contrast to the (mis-)use of price indexes in mainstream economics, the goldbug obsessions can always be countered by simply pointing out that gold is not an end-all. Therefore, while there will always be goldbugs immune to rational argument, their ideas are unlikely to become a basis for elaborate, sophisticated-looking, and academically accredited pseudoscience.
In contrast, the concept of “real” values in mainstream economics typically degenerates into an even more far-flung Platonic fantasy that there is some “real value” of money out there to be measured, discussed, and incorporated into theories like a real physical quantity. This fantasy is obscured by a vast cloud of complicated and abstruse (and seemingly objective and scientific) theory, to the point where it’s usually impossible to disentangle reality from fantasy and spin without a very considerable effort—in which economists are usually unwilling to cooperate, if not outright hostile.
None of the attributions to me sound like anything I’ve said, and your counterarguments are just parroting the mainstream view that I’m well aware of and criticized very specifically.
I’ve not been very coherent, and I think my once-debilitating fear of the Invisible Hand has not gone away enough.
So I’m not making a lot of sense, even to myself.
So, umm, never mind. Sorry for polluting the thread.
Good point. I have a bad habit of spending time in corners of the Internet where libertarians, gold-bugs and various mutations thereof like to come and argue (i.e. any economics-related blog); so anything that looks like hard-money or libertarian advocacy provokes an instant “aw geez, not this shit again!” reaction.
It does occur to me that any system of money with de-centralized production probably does have to have an upper quantity limit, to keep random assholes from manipulating its value.
As popular as libertarianism and goldbuggism seem to be, it wouldn’t surprise me if much Bitcoin advocacy did derive from those beliefs. And it seems those beliefs are at least as misguided as theism (and we have no trouble being dismissive of them). Is there a nice way to discuss that?
Sure, just discuss the particular problems with the (best versions of) propositions put forth by such people, and how their conclusions don’t follow, and what specific pieces of evidence weigh heavily against them. (Note the lack of smearing them as racists in this method.)
OTOH, if all you have is, “these people are weird and I don’t like them but I don’t specifically know what error they’re making, they just seem like aristocratic Southern racists”, you’re best off keeping that to yourself.
OK. Libertarianism I can leave to others (I don’t think I have anything new to say about it). As for hard-money advocacy, usually one sees the following errors:
Belief that there’s some Platonic ideal of “value” against which currencies should be measured (traditionally “gold”, though one sees variations these days)
Ignorance of the hazards of a totally exogenous money supply size. (fewer levers to deal with recessions and overly-hot economies; real wage declines have to happen nominally (which is very difficult) rather then through exchange rates)
Belief in immaculate transfer (trade balances, capital flows, and exchange rates in fact all affect one another)
Belief that the medium of exchange should be a stable long-term store of value, and in fact increase in real value without being invested (how could such a thing even work? What’s creating the value?)
As far as I can tell, the only of those I’ve seen from you in particular is the last one, and that’s another subthread.
There is a new one, from you, in this discussion though: the idea that “too much” economic activity is happening now, and it would be better to defer some of that economic activity until later. High unemployment refutes this. [If you’ll claim current unemployment is structural in nature, then what is the industry that lacks labor, and is thusly currently experiencing increasing real wages?]
I find it funny how fans of mainstream economics mock goldbugs about this, while at the same time basing a large part of their own theories on a far more extreme Platonic concept of “real” values calculated using price indexes.
I do not have the impression that mainstream economists subscribe to a Platonic concept of “real” values. (Or maybe I’m just confused about what you mean.) Can you cite an example of this (i.e., a paper or article that describes or assumes such a concept)?
I have in mind the regular use of “real” figures in economics (i.e. those that are “inflation-adjusted,” as well as those based on “purchasing power parity” etc.). These concepts are in principle dissolvable—when citing some “real” figures, economists could address the questions of what exact index was used to adjust the value, what would be the implications of choosing a different index, how much the figures vary under different more or less reasonable definitions of indexes, what political and bureaucratic incentives have influenced the design of the official government indexes, etc., etc. Trouble is, in practice they almost never do, and except for some narrow and specialized work that studies indexes as such, the de facto standard of discourse in economics is to treat the “real” values as having a Platonic reality. (Even people who specifically study price indexes typically speak about “overestimating” or “underestimating” their value, as if there existed some Platonic “true” value out there.)
As an example of nonsense along these lines, you can take almost any paper that discusses how much some “real” variables have changed over a period of several decades (sometimes they’ll even talk about centuries). Of course, if you read that something cost a dollar in 1950, you’ll want to know how that compares with the 1950 prices of, say, a loaf of bread, an hour of unskilled labor, etc., to get the feel for how much a dollar was worth back then. However, asking what the “real” value of a 1950 dollar is in 2011 dollars, as a unique and well-defined number, is simply meaningless, considering that you can’t trade dollars across time, and the world has changed so much, both technologically and socially, that what counts as “living” in the typical “cost of living” in each era is incommensurable. (The same of course goes for comparing very different places in the same era, and even for similar places, what you count as the “typical” cost of living is largely arbitrary, especially considering the increasing prominence of status goods and conspicuous consumption in the modern economy.)
Yet such numbers are regularly cited with three, four, or even more significant digits, without any consideration of how their value depends on arbitrary conventions and how this dependence influences the argument at hand. (And even if such problems are acknowledged, they are usually presented as imprecise knowledge of the Platonic “true” value, not as the fundamental arbitrariness of the whole concept.)
Ok, I was confused by “Platonic” which I thought you were using to refer to intrinsic as opposed to subjective value. Thanks for the clarification.
In the sense you intend, I think you’re right that mainstream economists do subscribe to a Platonic concept of “real” value. They believe that real-world price indexes are based on a theory of price indexes, which is based on a theory of social welfare, which in turn is based on sound philosophy. But I think they are also aware that there are lots of problems with both theory and practice (perhaps less aware of the philosophical problems) even if they tend to not pay much attention to them in their daily work. Standard textbooks do mention the problems, and intuitively it’s pretty obvious that price indexes must be at best very flawed approximations to reality.
Putting aside what mainstream economists believe, when you say “meaningless” or “fundamental arbitrariness”, do you mean for example that there is no way, even in principle, to compare the marginal utility of a dollar in 1950 with the marginal utility of a dollar in 2010? Is it due to the standard interpersonal comparison of utility problem, or something else?
To put it another way, do you think the mainstream economics community should be more aware of problems with the theory and practice of price indexes and perhaps allocate more resources to solving them, or do you think they are just not solvable, and an entirely new approach is needed?
Subjective value is indeed among the core assumptions of neoclassical economics. The problem is that a whole lot of stuff that economists would like to be able to do (due to both theoretical and ideological interests) is automatically ruled out by this assumption. Reification of “real” values is one way how they try to square this circle, since it enables them to introduce intrinsic value in all but name into their theories.
Yes, you can see this as a corollary of the general problem of interpersonal utility comparison. (Although even if interpersonally comparable utilities are granted and known, you need additional strong assumptions to get rid of all the degrees of freedom that make the choice of index arbitrary.) But these are all different ways of looking at the same problem, namely the problem of intrinsic vs. subjective value.
This is not to say that every attempt to compare the value of money in different places and times for some particular purpose is meaningless, but whether a given attempt is meaningful depends on the context and the sort of comparison used. To guarantee soundness, such comparisons should be justified on a case by case basis by demonstrating that the conclusion indeed follows from the particulars of the way comparison is done. What is definitely unsound is defining a general-purpose “real” value of money and then using it as de facto intrinsic value, without any reflection on how exactly its definition connects to the concrete problem at hand.
Your question seems to assume the existence of a real scientific community in economics, of the sort that exists in natural sciences. However, the problem is that the economics profession has always been deeply intertwined with politics, government bureaucracy, and broader ideological controversies, and as with other social sciences, many of its basic theories and concepts were invented to support an ideological agenda, not as part of a true scientific endeavor. Moreover, many questions in economics have real immediate implications in terms of power, wealth, and status—to take a pertinent example, entitlement payments by the government are often linked to price indexes, so the question of how they should be defined is not just theoretical, but of immediate financial interest to many parties. Clearly, it would be naive to expect that such questions will be treated with a pristine scientific approach.
In this situation, it’s unrealistic to try to identify and fix the problems and biases in economics (and other social sciences) on a case by case basis, since the real problems are much more general and fundamental. Of course, the existing body of knowledge in economics is far from being entirely worthless, but separating the wheat of true insight from the chaff of ideological delusion and dishonesty, let alone establishing a real epistemologically sound science in place of what exists now, would be a very radical project.
Can you expand? Here’s the difference as I see it:
Price index: the dollar is worth 5% less than last year because it buys 5% less of the stuff in this market basket, populated with stuff representative of the “cost of living”
Gold standard: the dollar is worth 5% less than last year because it buys 5% less gold
Which is more or less useful, and why?
Depending on the context, either concept can be anything from useful to deeply misleading. However, in contrast to the (mis-)use of price indexes in mainstream economics, the goldbug obsessions can always be countered by simply pointing out that gold is not an end-all. Therefore, while there will always be goldbugs immune to rational argument, their ideas are unlikely to become a basis for elaborate, sophisticated-looking, and academically accredited pseudoscience.
In contrast, the concept of “real” values in mainstream economics typically degenerates into an even more far-flung Platonic fantasy that there is some “real value” of money out there to be measured, discussed, and incorporated into theories like a real physical quantity. This fantasy is obscured by a vast cloud of complicated and abstruse (and seemingly objective and scientific) theory, to the point where it’s usually impossible to disentangle reality from fantasy and spin without a very considerable effort—in which economists are usually unwilling to cooperate, if not outright hostile.
None of the attributions to me sound like anything I’ve said, and your counterarguments are just parroting the mainstream view that I’m well aware of and criticized very specifically.
I’ve not been very coherent, and I think my once-debilitating fear of the Invisible Hand has not gone away enough. So I’m not making a lot of sense, even to myself.
So, umm, never mind. Sorry for polluting the thread.
Something doesn’t seem right about blaming the popularity of Bitcoin on goldbugs.